case study GG Toys

Profitability ratios are functions of both the industry and a company’s position within the industry. The boundaries are set by the operating characteristics of the industry, within these boundaries profitability ratios are determined by a player’s relative position. Gross profit margin should stay constant or increase because cost of goods sold should be a constant percentage of sales or should decrease as the company’s price increases and/or volume discounts. Gross profit margin was slightly favorable stable at 28%. The horizontal analysis information showed that sales had been averagely increased by 26% from 2001 to 2003.However the operating cost had been averagely increased by 27%.

It is a remarkable reality that the traditional costing systems use a solitary, volume-based cost driver. This is the motivation behind why the traditional product costing system misshapes the expense of items or products. By and large, this kind of costing system appoints the overhead expenses to items on the premise of their relative use of direct work. Thus, traditional cost systems frequently report incorrect product costs. The issue is in the basic technique of the traditional costing systems. They stick to the supposition that items reason cost. Every time a unit of product is produced, it is expected that cost be brought about.

The account issue addressed in this case study was whether to continue with the existing costing method for each product line or implement a activity-based costing method. The ABC method allows for an organization to allocate direct and indirect costs to products and obtain an accurate level of costs and profit for each unit produced, thus allowing the company to improve their overall operational effectiveness. ABC does differ from the existing costing method described in the case as the old method does not account for volume related overhead costs which must be allocated to the specific ODD and TGC products.

The New Heritage Doll Company is founded in 1985 and has long history. The management of company pay attention to the doll developing girls’ the imagination and self-image. The company tends to create some new products to dominate the market. The U.S. retail sales of dolls totaled $3.1 billion in 2008 while the New Heritage Doll Company’s revenue approximately $245 million of revenue, owning less than 10% of market share. There is good reason to believe that the New Heritage Doll Company has a potential future. Based on this assumption, we assume the New Heritage Doll Company’s g (internal growth rate) is not less than 3%(average growth of U.S. dolls market). The data total case flow of 2021 in Exhibit 1, Exhibit 2 we provided are base on

Since overhead at the Chicago plant is high, accurate cost accounting system is required. Different types of dolls require different amounts of machine hours, setups, production runs, shipments, etc. By using ABC, different manufacturing overhead would be allocated to each type of doll, giving result to different contribution margins.

See the profitability of each doll under the new and old systems have been compared and contrasted below.

Thedecline margins our popular in on Gtoftry doIIproduct become has intolerable. production Increasing haae costs dropped pretaxmarginto less our than10%, below historical our 257omargins, wearegoing If far to increase margins, need consider our we to drastically shiftingour production towards sfecialtydolts aie that earning large prnniumin priceoaer standard line. a our doll -Robert Parker,President, G.G.Toys

A common misconception made by management of a company is that a single definition of cost is ideally suited to all types of manufacturing decision. What a manager’s plan to produce must be well known to him and always taken into account where he fails to realize this, difficulty arises in determining the cost of production. This gives rise to two reasons for the difficulty in determining the cost of products produced. First, the relationship between the cost incurred and output produced is often difficult establish. Secondly, cost may be assembled, combined and reported in different ways.

It is important to realize that a company will not necessarily produce a product just because it is expected to break- even. Many times, a certain level of profitability or return on investment is desired. If this objective cannot be reached, which may mean selling a substantial number of units above break-even; the product may not be produced. However, the break-even is an excellent tool to help quantify the level of production needed for a new business or a new product. Once the break-even point is met, assuming no change in selling price, fixed and variable cost, a profit in the amount of the difference in the selling price and the variable costs will be recognized. One important aspect of break-even analysis is that it is normally

makes it easy to navigate, and identify which skills the toy strengthens. They sell several toy brands that have award winning products. Making them an ideal place to purchase toys for any special needs children. There is a Toys R Us ware house in almost every state, and there are over 683 stores nation wide. Making them easily accessible, and shipping has minimal difficulties, for those who have busy schedules. Walmart super centers are very popular for housing name brand toys as well, and even more accessible than Toys R Us.

The initial results revealed that in order to reduce the production costs they needed to work with the customers to change some of the previous behaviors that increased the production costs. These changes included ordering behavior as well as reducing the demand for customized products. The data obtained also revealed that prior decisions could also affect the full implementation of the system. In this case, prior commitments did not allow the company to take the necessary steps to completely reduce the costs as suggested by data obtained from the

If the company sells 172,983 units of the Velcro product, 211,801 units of the Metal product, and 268,943 units of the Nylon product, the company will indeed break even overall. However, the apparent break-evens for two of the products are higher than their normal annual sales.

The cost-volume-profit analysis is a form of cost accounting and an important part of this analyses is the break-even point.

managers, a new transfer price was determined that calìs for the stores and Wall Décor to split the profits on unframed prints 30/70 (30o/o to the store, 70o/o lo Wall Décor) and the profits on framed prints 50/50. The following additional terms were also agreed to: . "Profits" are defined as the store selling price less the ABC cost. . Stores do not share the profits from related products with Wall Décor. . Wall Décor will not seek to sell unframed and framed print items through anyone other than Greetings. . Wall Décor will work to decrease costs. . Greetings stores will not seek suppliers of prints other than Wall Décor. . Stores will keep the selling price of framed prints as it was before the change in transfer price. On average, stores will decrease the selling price of unframed prints to $20, with an expected increase in volume to 100,000 prints. Analyze how Wall Décor and the stores benefited from this new agreement. In your analysis, first (a) compute the profits of the stores and Wall Décor using traditional amounts related to pricing, cost,

INTRODUCTION Businesses – from manufacturing, merchandising and service industries alike – take careful consideration in the analysis of their costing systems in order to be able to set up competitive prices in the market. Misallocation of costs may lead to incorrect price estimates, continuous production of unprofitable products, and ineffective processing schedules. In this case study, we will discuss the costing methods which Zauner Ornaments have used or is currently using and, in conclusion, be able to distinguish the advantages and disadvantages of each costing method. CASE CONTEXT The case seeks to assist Zauner’s comptroller, Yu Chia-yi, in determining the best costing method for their overhead costs. In addition we also aim to